Reassessment under Section 147 for increase in revenue due to demonetization

The Government of India for curbing the black economy has stimulated people for shifting towards the digital payment mode for their financial transactions using net banking, wallets, debit/credit cards etc. Resorting to digital payment mode, none of the financial transactions can remain concealed and undisclosed from the eyes of the Income Tax Department and hence higher turnover may get reflected in the assessee’s books of accounts. This increased turnover will not be considered a valid reason for Reassessment under section 147

Reassessment under section 147
Reassessment under section 147

Under the current situation, there is an anxiety among the masses that due to the greater turnover in the current year might allow the Assessing Officer to reopen previous years’ cases which have lesser turnover under section 147 of the Income-tax Act; 1961which may cause undue irritation to the taxpayers.

Circular clarifies that any higher Income in current year is not a necessary indication of income having escaped taxation previous year-  As per the circular 40/2016 issued by the Government of India, the Government has clarified that the previous year’s cases can be opened u/s 147 of the Act only when the A.O has some reason to believe that there are income which is chargeable to tax has escaped the assessment for any of the assessment years and not just depending on the reasons to suspect. Just due to higher turnover which is due to the result of the use of the digital mode of payment, in the current financial year could not be the only reason for believing that the income has escaped the assessment in previous years.

READ  The Procedure for Reassessment Proceedings under the Income Tax Act

Therefore, the Assessing Officers have been advised for not reopening the previous assessments in cases just on the grounds that the revenue of the assessee has increased in the current year due to demonetization.

Also read- Reopening of Assessment not valid if not done with application of mind